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- Dry weather lifts markets
Wheat markets continued to rise this week, reacting to increasing concerns for wheat crops as dry and very cold weather persists in Western Europe and parts of the US. The latest US drought monitor maps show an increasing area of extreme drought now impacting on over three-quarters of major spring wheat state, North Dakota. However, spring wheat drilling in the state achieved 8% completion by 11th April compared to the 2% average for this time of year. Nationally, spring drilling is 11% complete compared to the 6% average.
Dry cold conditions remain in the forecast and US spring wheat futures rallied to new contract highs this week. In contrast, the central southern plains are due rain which will benefit winter crops. The condition of winter wheat crops remains unchanged at 53% rated 'good' to 'excellent'. Record low April temperatures have been prevalent in France and the UK. How damaging this has been for cereal crops remains to be seen. With more dry weather forecast for Western Europe, new crop wheat futures rallied to new contract highs. London new crop wheat futures have added a significant £15/t to their values since their lowest point in March, bringing them now to their highest values this season.
- Race to the top for Russian wheat
Analysts' latest wheat production estimates for Russia have now reached 81 million tonnes which, if realised, would be the country's third-highest crop on record. Weather in Eastern Europe and Black Sea countries has been the opposite of conditions in Western Europe, with crops enjoying rain and more favourable growing conditions. However, new crop Black Sea wheat prices have also risen and are now $10/t above last week's sales prices when Eqypt tendered Russian wheat. Political tensions continue to build between Russia and Ukraine with reports that 80,000 Russian troops line the Ukraine border. Any interruption to trade flows from the world's first and sixth most prominent wheat exporters could have notable market impact.
- Poor US exports stalls price rally
The wheat export pace from the US and the EU has been running at a strong pace with shipments to date sufficient to meet export estimates. EU shipments jumped 550,000 tonnes on the week, taking the total to 20.8 million tonnes. There are 11 weeks to go to the end of the season and the EU needs only to ship around 370,000 tonnes per week to meet export targets. The season's US wheat export sales figures are now above 93% of their target. However, this week the numbers were particularly poor and a surprise to traders. Sales last week were a negative 56,000 tonnes which was due to cancellations of previous sales. This resulted in a halt to the weather-led price rally.
Domestically, UK consumers remained quiet but the latest wheat import numbers for February showed a further slowdown and point towards an extremely tight old crop balance sheet. The UK imported just 94,956 tonnes of wheat during February, taking the total to 1.67 million tonnes. Exports in a year with 'no' exports are now up to 144,179 tonnes.
- Barley markets firm
Grain markets have generally firmed this week and barley is no exception. The main drivers for this shift have been weather in the Northern Hemisphere and the political tension surrounding Russia and Ukraine. The market will now be influenced by corn prices and the impact of how dry weather in the USA and dry and cold weather in Europe affects this season's barley production and already tight global stocks.
Without the luxury of the cheap corn supplies we saw 12 months ago, focus in the UK is very much on domestic wheat and barley at this time. With dry conditions currently across the UK, buyers of new crop barley outnumber sellers, keeping prices firm.
- Old crop barley supplies steady
Old crop supplies of barley in the UK keep coming forward at a steady pace. Demand for feed barley into the ruminant sector will probably decline as the late spring approaches but demand for pig and poultry rations appears to remain strong. Domestic values still remain ahead of export prices in the north and west of the UK where demand is strongest. Port bids to southeast ports do exist where limited old crop demand is seen from Spain and Portugal. Demand to this region will be limited as recent rains across Spain have raised prospects of a decent sized barley crop this coming harvest.
The dry conditions seen across the UK and cold conditions in mainland Europe are seen as unhelpful to the European spring barley crop and, as a result, European malting barley values have also firmed this week. Lack of sellers and more buyers looking for cover have driven values upwards despite continued demand uncertainty due to Covid restrictions across mainland Europe. With the current stronger feed base, growers with unmarketed malting barley in the ground should be looking at the range of spring barley min/max premium contracts Frontier have on offer for this harvest. Fixing some feed base while leaving the premium relatively open is a good way of hedging the spring crop in these early stages of crop development.
- Fear of frost damage in Europe
Once again, new crop markets have led the way in the past week with prices up by £20/t while nearby values have seen a more modest £10/t rise. Recent gains have been aided by the near 3% devaluation of sterling against the euro since its peak on April 5th but there are also growing concerns over the condition of Europe's rapeseed crops. Frost damage is a concern for continental growers, particularly in France and Eastern Europe. Some early flowering crops in the UK are currently impacted by the recent low temperatures at night. Currently, the lack of warmth during daylight hours and low soil moistures are more of a concern for our domestic crop but, hopefully, the higher temperatures forecast for this weekend onwards will avert any further damage during the main flowering season. In light of these circumstances, it isn't surprising that Paris rapeseed futures found new contract highs this week.
- Strong demand in global oilseeds markets
Further afield, there are a number of factors supportive to world oilseeds markets. Dry weather in the US plains is allowing spring sowing to progress quickly and may well lead to higher corn plantings which, in turn, will leave less land available for soybeans. Weather is currently favourable in the Black Sea region but rising tensions between Russia and Ukraine is raising the prospect of possible future disruptions to trade flows.
On the demand side, a general fear of price inflation in the global economy is keeping buyers to the fore and the surge in crude oil prices, up 7% this week, is helping build optimism in the biofuel sector. In the US, there are no signs that high prices are rationing the demand into the country's domestic crush and the 2020/21 export forecast for beans from the United States Department of Agriculture (USDA) has almost been achieved with a quarter of the campaign left to go. The US only needs to ship 55,000 tonnes per week to hit the forecast and this is almost certain to happen. China presents one key uncertainty with low domestic crush margins limiting demand and the effect of the swine fever outbreak difficult to quantify. China has clearly played a significant role in driving up prices in the past year and it is expected that it is only a matter of time before the country makes a return to the market to buy.
The conditions for spring crop growth have not been ideal this week so it has inevitably been a quiet week on the fertiliser markets. High urea and ammonia prices still dominate the world trade with very little in the short term predicted to improve the UK market. There is no demand for granular urea given the dry soils but some demand for ammonium nitrate remains. Crop prices remain strong, meaning return on investment (ROI) on a tonne of nitrogen at current values still represents good value.
- Phosphate and potash
Strong world phosphate prices and low demand in the UK makes extra top-up cargoes of TSP or DAP very hard to justify. Supply issues when the rain arrives is therefore anticipated. Potash values remain at similar levels to last week but with talk of Brazil and Asia paying higher prices for potash, small increases could be expected soon in the UK.
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